Rethinking the Nanny Tax: A Comparative Analysis of the Formalization and Marketization of Domestic Labor
The International Labour Organization reports that in 2024, the female labor force participation rate in the United States stood at 56.6%, only 7.5% higher than the global average of 49.1%. Footnote #1 content: Esteban Ortiz-Ospina, Sandra Tzvetkova, & Max Roser, Women’s Employment, OUR WORLD IN DATA, https://perma.cc/L4G8-HLUJ (last updated Mar. 2024). Research indicates a negative correlation between women’s participation in labor markets and the time demands of unpaid household services, which includes “care of person, housework and voluntary community work.” Footnote #2 content: Id. Scholars have long recognized the productive nature of household activities and the market value of productive household labor. Footnote #3 content: Nancy C. Staudt, Taxing Housework, 84 GEO. L.J. 1571, 1624–27 (1996). If incorporated into gross domestic product (GDP), it would have added approximately $3.8 trillion to the U.S. economy in 2010. Footnote #4 content: What is the Value of Household Work?, U.S. DEP’T OF COM., BUREAU OF ECON. ANALYSIS (Jun. 11, 2012), https://perma.cc/KF8G-MNKQ.
Government support for the marketization of domestic work—that is, shifting unpaid domestic work into the formal paid economy Footnote #5 content: Nickela Anderson & Karen D. Hughes, The Business of Caring: Women’s Self-Employment and the Marketization of Care, 17 GENDER, WORK & ORG. 381, 381–82 (2010) (defining marketization of care). —could enhance productivity in both the private and public spheres while also alleviating the burden ounpaid domestic labor, advancing gender equality. Footnote #6 content: See Sumika Yamane, Gender equality, paid and unpaid care and domestic work: Disadvantages of state-supported marketization of care and domestic work, 47 THE JAPANESE POL. ECON. 44, 44–45 (2021). For example, some European countries have taken steps in this direction by offering tax credits or deductions for outsourcing domestic work, paired with legal protections for domestic workers through formal contracts. Footnote #7 content: Id. at 50. These policies offer a potential model for how states can both support families and safeguard labor rights. However, the marketization of domestic labor in the U.S. presents complex challenges due to its deep ties to race and immigration status. Footnote #8 content: See Taunya Lovell Banks, Toward a Global Critical Feminist Vision: Domestic Work and the Nanny Tax Debate, 3 J. GENDER, RACE & JUST. 1, 25 (1999). According to statistics published by the Economic Policy Institute, as of 2021, a majority (56.6%) of domestic workers were Black, Hispanic, or Asian American and Pacific Islander. Footnote #9 content: ASHA BANERJEE, KATHERINE DECOURCY, KYLE K. MOORE & JULIA WOLFE, DOMESTIC WORKERS CHARTBOOK 2022: A COMPREHENSIVE LOOK AT THE DEMOGRAPHICS, WAGES, BENEFITS, AND POVERTY RATES OF THE PROFESSIONALS WHO CARE FOR OUR FAMILY MEMBERS AND CLEAN OUR HOMES 8–9 (Econ. Pol’y Inst. 2021), https://perma.cc/A44J-QCDM. Additionally, foreign-born noncitizens were overrepresented in all domestic worker occupations, particularly in the house cleaner sector, where they constitute 49.9% of workers. Footnote #10 content: Id. at 12–13.
How can tax and immigration policies be designed to formalize and marketize domestic labor while protecting workers’ rights and preventing stereotypes of servitude? In this context, formality refers to economic activities regulated by the government, including tax compliance and labor regulations. Footnote #11 content: Ariel Jurow Kleiman, Shayak Sarkar, & Emily Satterthwaite, Taxing Nannies, 110 IOWA L. REV. 111, 114 (2024). In contrast, informality involves under-the-table payments—wages paid in cash without official records or tax reporting—with minimal government oversight and tax enforcement, often resulting in precarious and unprotected working conditions. Footnote #12 content: Id. at 114–15; Luis Eduardo Guarnizo & Guadalupe Rodriguez, Paid domestic work, globalization, and informality, 23 POPULATION SPACE PLACE 1, 3 (2017). Domestic work includes not only childcare but also cleaning, laundry, elder care, and other household services. Currently, the domestic work industry in the U.S. remains largely informal. Footnote #13 content: See Kleiman, Sarkar, & Satterthwaite, supra note 11, at 114; see also Guarnizo & Rodriguez, supra note 12, at 12 (concluding that domestic work is informal across the board in the Sacramento area). Despite the growing demand for childcare and the aging population, the country is facing what the National Domestic Workers Alliance (NDWA) refers to as a “care crisis.” Footnote #14 content: Transforming Care Work, NAT’L DOMESTIC WORKERS ALL., https://perma.cc/TP7B-F6BL. Specifically, low-income households—especially those headed by single working mothers—have limited access to care and are forced to shoulder a “double workday,” balancing paid employment with household labor. Footnote #15 content: Id.; Staudt, supra note 3, at 1581; Guarnizo & Rodriguez, supra note 12, at 12 (“While household care deficit is experienced by almost half the households sampled, only those with resources are able to pay for domestic work.”). At the same time, domestic workers are underpaid, vulnerable to exploitation, and, for undocumented workers, face the added challenges around immigration. Footnote #16 content: Transforming Care Work, supra note 14; Banks, supra note 8, at 31; see also Kleiman, Sarkar, & Satterthwaite, supra note 11, at 154–55 (discussing why certain nannies prefer informality). Given the potential for formalizing and marketizing care work to increase GDP, advance gender equity and alleviate the care crisis, there is a clear need for reform. Policy solutions—specifically reforms to tax credits for families hiring domestic help and more inclusive immigration policies— could enhance tax compliance, expand access to care services, and improve conditions for domestic workers, especially foreign non-citizens.
Part I of this Note explores the complexities of the “Nanny Tax,” the federal and state employment tax obligations placed on families who hire domestic workers. Footnote #17 content: Brian Erard, Who Is Minding the Nanny Tax?, 2018 IRS-TPC RSCH. CONF. 189, 189 (defining the “Nanny Tax”). It highlights the tax’s low compliance rates and the limited legal protections afforded to domestic workers, particularly non-citizen laborers. Part II offers a comparative analysis of domestic labor policies in Sweden and Canada, examining their approaches to taxation, labor protections, and the intersection of migration and care work. Drawing on Sweden’s model for industry formalization and Canada’s approach to immigration, Part III proposes a hybrid model for the U.S. This model advocates for refundable tax credits, which would make care services more affordable for families with the most need, and the passage of a National Domestic Workers Bill of Rights. Furthermore, creating a pathway to citizenship for migrant workers would strengthen labor protections and promote long-term stability. Ultimately, this Note calls for a reimagining of the Nanny Tax to establish a more equitable, accessible, and formalized domestic labor system.
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